United States: Recommendations for Medical Device Manufacturers

The U.S. health care system is in the midst of a fundamental shift, away from traditional fee-for-service models that reward providers based upon the volume of services provided to patients, and toward value-based care programs designed to reward the quality and efficiency of health care services. As a result of value-based government and private-pay initiatives, medical device companies are transitioning from their traditional focus on product sales to new models of operation that allow medical device companies to play key roles in shaping and managing the delivery of, and payment for, episodes of care.

In this segment of our value-based health care teleconference series, "The Transition to Value-Based Health Care: Recommendations for Medical Device Manufacturers," health care partners Deborah L. Gersh and Timothy McCrystal and health care associate Jennifer Romig discussed the value-based health care landscape and highlight strategies for medical device companies to position themselves for success in the movement to new models of payment and care delivery.

Click the links below to access the presentation materials.


Tim:  Good afternoon and welcome to Ropes & Gray's teleconference on "Recommendations for Medical Device Manufacturers," part of our "Transition to Value-Based Health Care" teleconference series.  Thanks for joining us.  My name is Tim McCrystal and I'm a partner in the Health Care group at Ropes & Gray's Boston office.  I'm joined today by my colleagues, Debbie Gersh, a partner in the Health Care Group out of the Chicago office and Jennifer Romig, an associate in the Health care Group who is also resident in our Chicago office.  We hope you find the program worthwhile.  Today's presentation is for educational and informational purposes only.  Nothing we say, nor our slides, should be construed as legal advice or legal opinion on any specific facts or circumstances.  Today's presentation is not intended to create a lawyer-client relationship, and you are urged to consult with your own lawyer concerning your particular situation and any specific questions you may have. 

I will speak first today and provide initially some introductory remarks, if you would go to slide three in the slide deck.  Value-based care has been described as a sea change for the health care industry.  We generally agree with that proposition, even though we recognize that the currents of change will ebb and flow with the political and regulatory decision-making around government-sponsored value-based health care programs and initiatives. 

If I had to sum up in one word the import of value-based health care to medical device companies, that word would be "opportunity."  That opportunity is to participate in a realignment of the traditional relationships among device companies, providers, patients and payors.  It is also an opportunity for device companies to use their substantial expertise and advanced thinking about the delivery of care to improve outcomes, quality and efficiency in a meaningful way.  The opportunity includes the chance to become more involved in consulting, management and ownership in health care and to align strategically with customers.  We will discuss these opportunities in some detail during this presentation.  With this new opportunity, there also comes financial, operational and compliance risk associated with value-based programs.  But learning to play in the world of value-based care appears to be a necessary skillset going forward.  We plan to discuss the impact of the value-based care on the traditional medical device business model and provide suggestions on navigating these risks during our discussion today.

If you turn to slide four, we will continue our introductory remarks.  One part of our presentation today will review new payment models and how they impact the delivery system overall.  The evolution of value-based care models continues in responding to the pace of industry change creates both organizational and compliance challenges.  We have been working in this space for some time and our experience tells us that the development of a big picture strategy to respond to value-based opportunities is a key starting point to creating a lasting, workable and compliant structure.  From that big-picture strategy, we then see the development of specific business models in offerings aligned around products, industry segments or specific value-based opportunities.  Our clients' experiences in executing on these models then informs both the strategy and the tactical execution on these opportunities going forward.  We will discuss some of our thinking and experience on these points as we move through this presentation.

We're going to now shift to a discussion of value-based care, and on slide six, as we think about value-based care, it's helpful to survey the starting point and how things are changing.  When you look at the traditional model for a medical device company, it's selling products.  There were some value adds in the form of training, educational and supply-and-support for devices, but nothing in comparison to the opportunities that present in the context of value-based health care.  The economic model really is one of sales, where device companies discounted the sale of their products, the government provided a discount safe harbor to address discounts that meet the terms of that safe harbor, and it was relatively simple in approach.  And the business model has now expanded, if we go to slide seven, towards new programs.

The shift of value-based care changes the traditional model and the programs adopted by the CMS Center for Medicare & Medicaid Innovation illustrate this shift.  I'm sure that many of you on the phone are intimately familiar with a number of these models that we have listed on slide seven, so I won't go into them in detail other than to make a couple of points.  One is the CMMI's models created a dynamic in the industry and developed near-term difficulty for providers and payors who needed to quickly think through the models for reimbursement and delivery of care—particularly for those value-based models that had mandatory participation.  And the result of these models was that payors and providers thought about and executed on relationships with device companies and each other and consolidation of care in the industry.

Now, the rapid pace of alignment and relationship development may slow somewhat, given the fact that there has been a delay in the effective date of some of the regulations around mandatory episode-based payment initiatives.  As you probably know, these rules are currently scheduled to go into effect on October 1, 2017.  Most recently, on March 21, CMS published an interim final rule with comment period proposing to delay the implementation of the rule until October.  That interim rule also solicits further comments on a further delay of the rules until January 2018.  So, we will all be mindful and watching the development of some of the mandatory based programs for potential changes including a transition, perhaps, to voluntary participation, much like the Bundled Payments for Care Improvement or BPCI initiative.

Transitioning to slide eight, how do we really define value-based care and value-based payment?  Value-based care is an alternative to the traditional volume-based model.  Value-based care models generally determine payments to providers based on the quality and cost of care as measured against clinical quality metrics, outcomes measurements, patient satisfaction, care coordination and cost metrics.  Value-based care payment models can range from the simple quality reporting and performance, to upside incentive arrangements, to payments based on bundled reimbursement guarantees and other risk-sharing arrangements.  In the device context, value-based care arrangements are often alongside the traditional product sales agreements, but must be based in some way on the factors listed above—namely, tying payment to the achievement of quality outcomes measures.

Moving to slide nine. In the context of value-based payment arrangements, from a regulatory standpoint, we see some very familiar regulatory issues and some new ones.  The Anti-Kickback Statute and fraud and abuse issues have been around with medical device company sales arrangements for a long time.  But transitioning to, potentially, the assumption of risk can create issues for compliance with state laws that regulate entities that bear risk in connection with the provision of health care services; potential conflict of interest issues; data sharing is a key component of many value-based contract arrangements because the analytics around the data are so important to support decision-making—the access to data, use of data and sharing of data creates issues on these arrangements that didn't, for the most part, exist previously; and also, potential corporate practice and fee splitting arrangements, to the extent that device companies are becoming involved, and connected to, the compensation, consideration and the delivery of health care services.  So, navigating the new regulatory issues are significant exercises at the front end as device companies are thinking about value-based care arrangements.

Moving to slide ten. By way of analogy, as we think about what guidance exists in the market for thinking through some of these arrangements, we end up thinking about gainsharing.  Many of you may be familiar with gainsharing arrangements, but for a baseline, a gainsharing arrangement is typically an arrangement where a hospital is trying to create efficiency within its organization and sets up an arrangement to pay physicians a share of cost reductions attributable to conduct of the physicians and staff around implementation of cost-saving measures.  Gainsharing arrangements can be complex.  They are specifically limited to physicians in terms of the existing guidance.

Transitioning to slide eleven. When one looks at the gainsharing guidance, while it does not directly apply to device companies, it does provide, by analogy, some helpful thinking on the government's approach to sharing and savings that are produced through efficiencies and, in the context, we would extend that guidance to the production of quality measures and achievement of quality measures combined with savings around the provision of care.  So again, while not directly applicable to arrangements for value-based care, the gainsharing opinions, many of which were published in the twelve-year period from 2000 to 2012, provide helpful guidance when thinking through the facts and circumstances that would be considered in evaluating the compliance of a value-based health care arrangement with the law.

Moving to slide twelve and beginning a discussion of what opportunities are presented.  I noted that we view value-based health care as an opportunity for device companies.  In the next few slides, I will discuss in more detail the nature of these arrangements and the risk areas for companies.  But first, an important piece is that value-based health care really is driving changes to both the delivery system and the payment system.  We think about it from the standpoint, sometimes, as first a payment system reform, but moving to slide thirteen, it really is a significant change agent for the delivery of care.  In particular, we are seeing alignment among providers, both through acquisition, through joint ventures and other contractual alignments to coordinate on the delivery of care and try to improve efficiency and drive quality against the measures that are being driven under the payment transformation, including those that will involve bundled payments, which, again, brings both a system transformation and providers together to match under bundled arrangements.

Going to the next slide, when I think about device companies, they have unique and extensive experience to bring to the table for value-based patient arrangements, including care in patient-adherence tools, reviewing data and outcomes information and providing data analysis to clients, management of the delivery of services in using their advanced thinking around the use of their devices to enhance the care and help providers achieve the economic goals that underlie value-based care.  There are a number of legal issues around these programs, which we will talk about during this presentation.

I'm going to stop here and transition to Jenn Romig, who's going to begin with a discussion of the continuum of the delivery system transformation that we see being brought about by value-based health care opportunities.

Jennifer:  Thanks, Tim.  Good afternoon everyone.  So, I'm going to pick up on Tim's theme of opportunities, and we are increasingly, as Tim said, seeing these opportunities in the market.  In particular, in February of this year, Forbes reported that UnitedHealthcare, Aetna and Anthem were all near 50% for their value-based spending.  And Anthem noted that its goal was to hit 50% by 2020 and Aetna noted that its goal was to hit 75% also by 2020, and so what does this mean for medical device manufacturers?  It introduces opportunity in the market to assist providers and payors with a provision of services that will help them transition to value-based care.  And, in particular, device companies often have great experience with things like data and data analytics, transition to management services and development of certain patient adherence tools.  As Tim said, there are a number of legal risks that we will talk about in these slides, which really center around the structure of the engagement, and in particular, the separation of product selection from the pricing of products and services.

Turning to slide sixteen.  So, here you can see the continuum of delivery system transformation.  And this slide really evidences how medical device companies can help put their expertise into action.  So, one aspect of value-based care, which Tim discussed, is the transformation of the payment system.  The other, which we will discuss on these slides, is the transformation of the delivery system and how care is delivered.  As you can see here, there are several ways to think about and to focus on delivery system transformation.  So, starting with the far left, as an initial step, the first movement to value-based care by many medical device companies is often the overlay of a new payment methodology onto a traditional medical device sale.  So, a traditional medical device sale will have a value-based component based on satisfaction of quality of care, efficiency or certain other goals.

Further along the spectrum, we see a focus on a new delivery system of services provided by the device company.  And we'll focus on that a lot in this presentation because this is really the sea change in the services provided by a device company.  And this could include things like software and services that are related to a key product for the device company.  Further along, it might involve providing consulting or episode management services to providers.  Even further, it could involve implementation of some telehealth units to assist with remote monitoring capabilities.  Even further along this spectrum of vertical integration and delivery system transformation, are models that involve the management of a provider or the ownership of a provider, and these models are, I would say, still coming into play more and more.  We've seen a number of them in Europe where, obviously, the regulatory regime is different from that in the US, but we are seeing a movement from episode-of-care management towards management of a provider business line or management of a provider as a whole.

Turning to slide seventeen, in the traditional sale and value-based payment model, this is often the first step for many medical device companies moving towards value-based care.  It's very attractive as an initial foray.  It is still product-focused, where the expertise of the medical device company often traditionally lies.  It also may involve a relatively limited investment, similar personnel who are knowledgeable about the product and really a restructuring of the payment regime, rather than anything involving the delivery system.  It's also not as difficult, many times, to have a hospital or other customers trust the expertise of the medical device company, because there isn't as big of a shift in skill set.  So, this is sort of dipping the toe in the world of value-based care.

Turning to slide eighteen.  So, we have two examples here involving St. Jude Medical and Biosense Webster, and both of these programs were examples of traditional medical device sales with an overlay of a value-based payment model.  And if you look at the dates on these, these are both 2014 programs, we see a lot of these programs emerging in the 2013 to 2014 timeframe.  This alliance, as Tim referred to earlier, this alliance with the Bundled Payments for Care Improvement program by the government, as well as other government initiatives.  So the St. Jude Medical program is really a payment for hospitals of a rebate on devices, if a revision is needed within the first year of implantation.  And Biosense Webster, through its new Biosense Webster Advantage Program, provided a guaranteed credit to hospital customers if a patient with AFib was treated with their SMARTTOUCH catheter and returned for a repeat procedure.  So, these were both self-described outcome-based, risk-sharing programs.  They are each device driven programs and they are device driven programs and they're the first step into value-based care—they are still relevant today.  Looking at that arrow and thinking about the continuum, these are very much still in use and still have value, but you can see that they are very product-driven and they don't involve, necessarily, a lot of ancillary services.

Turning to slide nineteen.  The transformation of the payment system still brings potential regulatory challenges.  I think many people on the line are familiar with the government models, in which case a bundled payment is often accompanied by a waiver for Anti-Kickback Statute risks and other risks.  Here, we don't have those waivers, and so there are a number of regulatory issues with which companies need to grapple.  Key, of course, are our AKS concerns.  Can this type of payment meet the safe harbor?  Are there bundling issues?  There are additional considerations with payor-provider relationships.  Terms of thinking about who is my customer here?  Who is the beneficiary of this value-based payment?  There are also new, in some cases, and old in other cases, state laws regarding risk-bearing entities.  Some of them are state insurance laws and others are relatively new laws developing that apply to providers and others who bear risk.  Finally, there is a potential complication if the customer is participating in any government initiative, where there are often strictures on how the participant can share in value-based savings.

Turning to slide twenty—moving more towards the consulting and episode management model.  Now this model is really the sea change.  It's the shift in value-based services where the medical device company is no longer providing a product in a product-focused model, but is moving towards a service-focused model, and the value of the services that it can provide to its customers.  This big leap raises a number of questions.  It raises a number of operational questions.  It raises questions about a new skill set, and it raises questions about development of these skills and the relationships with providers, payors and others who are partners in the movement towards these services.  Now, we'll talk about it in these slides, but there's an enormous amount of variety with the consulting and episode management model.  As a result, this potential for model variation means there is a wide variety of compliance risks, each of which are analyzed particular to each model.

So on slide twenty-one, something worth mentioning here, as a separate piece, is data.  Data is really key in many of these new service-focused models.  In particular, we see a lot of data aggregation and de-identification services, use of predictive analytics and a number of questions about sharing data.  And, of course, data is so important in terms of quality of care and clinical outcomes, product development, but it really presents a variety of challenges—under HIPAA, under state laws regarding personal information, and contractual restrictions in particular.  And so, throughout these models you'll see, as a key part of the services, medical device companies can often bring data and expertise with data to the table.  But what that means is that they need to think in every step along the way, how can they use, disclose and share this data with their customers, with their providers and even within themselves between their device-focused units and their service-focused units.

Turning to slide twenty-two.  There are a few examples of the consulting and episode management model.  This first example with Smith & Nephew's Strategic Business Unit. Syncera, is about the acquisition of Virtual Backtable and TrayTouch.  These are software assets, and what Smith & Nephew's Syncera unit did was it acquired Virtual Backtable and TrayTouch.  They are used in an OR to identify instruments used during the procedure, assist with prep, streamline assembly and then it allows surgeons to reorganize the tray table and train individuals on the tray table preferred by each surgeon.  This, in turn, allegedly, streamlines the entire process and results in cost savings.  So, this is a new technology and it is a new service-driven product and technology that Syncera's providing.  At the same time, it's designed to complement Syncera's role in the hip-and-knee marketplace and build on its expertise in the OR and in the marketplace. 

So it has not yet gone as far as another example, which is on slide twenty-three: Boston Scientific.  And one thing I'll point out is that, as we move farther along these examples, you can see that this a 2015 and a 2016 example here.  So, what we've seen in the marketplace is a move from traditional device sale with an overlay of value-based payment, you know, dipping the toe in the waters of technology that is product focused and moving more towards a whole initiative that is service based.  And under these two programs, Boston Scientific, in connection with its ADVANTICS service, announced strategic alignments with a software analytics company and a cardiovascular consulting company.  Later, Boston Scientific's same division announced the development of a digital health solution with Accenture.  And through each of these, Boston Scientific has the goal of improving care pathway, analytics, care management, patient engagement and you can see how this moves towards the more holistic service.  The other thing that is notable here is that these are both partnerships.  They're strategic alignments with two companies—a software and a consulting company—with a lot of expertise in their area.  Similarly, building on expertise in Accenture's areas as well, this allows for a quick transformation into a more holistic service base because they are bringing in that expertise.  The other notable thing is that initially these services were focused really in the cardiovascular space, but Boston Scientific has said a few times that it plans to move toward management of other disease states, episodes of care, and patient population—meaning that it is starting in sort of its area of expertise and gradually moving into the broader marketplace.

Now on slide twenty-four. This is actually one of the earliest programs, and this is Depuy Synthes' Geriatric Fracture Program.  This is a management and an episode-of-care, and for those of you looking at it who are familiar with some of the government programs, it is in many ways very complimentary to the goals of some of the BPCI, and CJR and other programs, in that it focuses on patients as soon as they arrive at a hospital, getting them to early surgical intervention within 24 hours, helping the hospital with implementation support and program materials, helping the hospital to manage the care of the patient all the way through, communicating with patients, providing education, making sure patient satisfaction rates are up and finally assisting with the performance dashboard and provide data and metrics to the hospital.  And I know that Depuy has said that these are data-driven programs for them.  And this was an early program, but it's notable because recently there's been talk about how this program will help hospitals enrolled in a lot of the mandatory CMMI programs.

Moving to slide twenty-five.  So, these models for episode management and consulting really focused on the delivery system transformation rather than the value-based payment.  But for each of these, there is potential for a value-based payment overlay.  And there is a wide variety of opportunities here.  I know for certain of the programs, for example the Episode of Care program, there is potential for a bundled payment model for each of the episodes of care.  Alternatively, there may be some combination of bundled payment for an episode of care with a minimum quality threshold and then following that, higher bonus payments or higher levels of payments based on quality of care, patient satisfaction and other factors.  This is very helpful in many ways for a medical device company because what it means is it can discuss with providers and payors and work with them to figure out what is the best way that value-based care fits into these new delivery system models.  In addition, as Tim mentioned, there's the potential for helping design and establish gainsharing initiatives to incentivize physician participation here.

Moving to slide twenty-six.  This is a brief slide, just sort of illuminating some of the payor initiatives here.  We've already talked about the movement of UnitedHealthcare and others towards value-based care and these are two examples of very recent UnitedHealthcare programs; one is with Ortho Rhode Island, an orthopedic care group, and the other is really for large and mid sized companies with self funded health programs.  But in each case, UnitedHealthcare's clearly trying to figure out how it can move to value-based care within these defined populations of orthopedic, spine and joint care.  And the interesting thing here is Ortho Rhode Island is an orthopedic care group and UnitedHealthcare's program is designed to actually create care coordination around Ortho Rhode Island providers.  And one thing that is, I think, interesting about it is United has been very open about the fact that it plans to supplement Ortho Rhode Island's data with its own data to help support a movement towards population health, and really, Ortho Rhode Island is a fairly big group in Rhode Island, it intends to sort of target, as far as we can tell, the state of orthopedic care in Rhode Island and create population health plans in part based on that.  And so what this does, coming back to Tim's buzzword, is it creates opportunity.  These are very recent programs; they are different programs, but they are focused in certain areas and you can see where there's opportunity here, not only with providers like we talked about in the other delivery system transformation models, but also with payors, who are still clearly figuring out how they can most efficiently move to value-based care.  And so the technology, the consulting, the data analytics—those are all things that medical device companies can bring to bear and assist in the implementation of these value-based care programs.

Turning to slide twenty-seven.  You knew we would get here sometime!  There are a number of regulatory challenges when assessing how medical device companies can participate in value-based care.  And a key question here, and in many cases the key question, is how medical device companies will treat the purchase of services versus the purchase of its products.  And this, as I mentioned earlier, varies widely depending on whether there is an acquisition of certain services, whether there's a separate legal entity involved, whether this was done through a partnership, but in any case, these are a number of the risks that come into play—some of which I mentioned earlier—when thinking through these compliance concerns and mitigation strategies.

Now, moving to slide twenty-eight. There are ways to think about how can medical device companies mitigate these risks.  The first and the key question is the separation of the service payment from the device payment.  Many companies will try first to sort of track the personal services and management agreements safe harbor.  This often is not possible when there is a value-based payment overlay.  But still, adhering as closely as possible to the principles of that safe harbor and then developing safeguards and additional mitigation actions.  And again, these will differ depending on the structure of the program, who are involved, who the partners are.  But in any case, things that we have seen in certain advisory opinions and things that we know the government is looking at are things like clear and transparent risk-sharing tied to very specific metrics and objective metrics that you need to meet in order to receive a value care based payment.  The other is another objective quality metrics.  And what we've seen in a lot of these government programs, increasingly, are increasing quality standard both in number and in how stringent the standards are.  We have also seen firewalls with medical device companies' sales units.  And again, this ties back to the separation of the service and the product.  And finally, the importance of a strong compliance program.  This is difficult for many companies because the current regulatory regime, and the compliance programs that were built around the regime, are not tailored to that value-based care, they're tailored to fee-for-service payments.  And so, this is something that we've seen a lot of companies struggle with— not only how to transition to value-based care but how to transition their compliance programs to value-based care.  These risks really only get greater as we move toward a management and a provider ownership model.  So with that, I'm going to hand this over to Deb Gersh to talk about the provider management ownership and other compliance concerns.

Debbie:  Thanks, Jenn.  This is Debbie.  Thank you again for participating in this conference.  One of the things, just to pick up from where Jenn left off, relates to moving more toward the service model.  And this is often a challenge for medical device companies in the struggle with being fairly product-oriented with supplemental services and moving more toward a service line.  This is also consistent with the continuum of delivery system transformation that Jenn spoke about.  And in particular, on slide twenty-nine, we talk about this service-type of arrangement.  One of the struggles that we have seen in looking at a number of the ventures that Jenn had spoken about is the challenge for medical device companies to have a proof of concept with respect to their service lines.  And how do medical device companies shift into that service line at least somewhat independent from the product line?  So, as noted on slide twenty-nine, this is a fairly significant leap.  Moving from the traditional model to an episode management model, which we have seen and which we did receive some decent guidance from OIG and CMMI, but now we start moving toward that service component and it gets a little more cloudy.  And so, this leap requires us to think a little bit more and to do much more of a risk assessment.  And also, as I noted earlier, the proof of concept becomes a challenge—as we have seen, there is a struggle between the product, which is well developed, and the supplemental services around it, versus independent services that we're going to talk about now.

And in moving to slide thirty, just to highlight the various regulatory issues here, there was a ruling in 2012 (12/22) that a lot of folks talk about that did provide us some guidance on the balance between how we provide for risk-sharing and gainsharing and other models where we can reward good behavior and then also accept responsibility if outcomes aren't what they should be.  And as we'll see as we go through these slides, that is five years ago and one of the reasons why there has been a call to action by medical device, and pharmaceutical and others, including providers, to say we need more guidance, and I applaud the industry leaders for doing this because the risk should not be simply on the medical device companies and others.  And that is where it tends to stand now, and as we all know, the irony of this is that in CMMI, they receive waivers.  They gave themselves their own get-out-of-jail-free card, no pun intended.  So, that is something that really has to be pushed by everyone.

In going to slide thirty-one, there are a number of other more specific questions that I just want to talk about a little bit.  And that is: how do you, in this world of separating product from service and moving that way, how do you help to understand the risk, know where the real third rail items are, but still be successful in starting a more nuanced business more towards the service side without relying as much on the medical device side.  And one of the key issues there, to state the obvious, is to be able to separate the sale of the product from the value services that you're providing.  And where we see a lot of this happening is when medical device companies become the service provider for either an episode of care or for a more integrated delivery care as Jenn spoke about earlier. So, it would be in the wellness clinics, in cardiology, in hip and joint replacement; we don't sit just in one section of that, but there is a continuum of service that is provided by a medical device company because of their experience in the area and being able to help providers and others in that regard.

But what becomes challenging is that proof of concept and provider alignment.  So, as a medical device company, in being able to have those partnerships with providers, that has developed over time and is more natural.  The challenge, then, is saying we think we can improve how you run your operating room, how you provide other services, how you help prepare the patient for surgery, how do you have them recover quickly; and then using that experience that you have as proof of concept and to improvement clinical pathways.  And key, of course, is provider alignment.  And with that, that's where the value is, presumably, for the ability of those services to be provided and to show that we really can, for example, reduce length of stay, and reduce all those types of costs—so balance the costs with the quality.  But it's not easy because the historical regulatory framework hasn't allowed for that.

So, now that we've spoken a little about the service side, which has its challenges, and then in creating the proof of concept because it's difficult coming out with a new service product— how do you value it, how do you convince the providers to align with you?  One of the key components is data, as Jenn talked about, and how data has been gathered; but there is always challenges in using it.  And there is the inherent struggle and tension between the product side and the service side being careful to only share that data when it's permissible.  And that is very difficult because they're so integrally related.

The provider organization side lends itself, even more so, to an integrated model and that is because you are really acting as the provider and the risks are more and greater.  One of the advantages, though, as a provider, and again this is pretty new, we don't see many examples of this if at all, there's a lot in the discussion stage because it's really an ownership concept—so more in the context of an ambulatory surgical center, or in Europe, the diabetes model, the wellness model, the cardio model, there are other regulatory challenges here to full ownership, so we see quasi-ownership, in this case, either through a friendly professional corporation who helps assist with the professional services or otherwise, to help address those issues.  But the one advantage—well there's several advantages in addition to the risk that the provider organizations do allow—is again, more direct control of that pathway and of the integration of the services, although not without its challenges as to how to price it and how to share the risk.  And what you also see here is an assumption, much like the service model and then on to the provider model, with the risk of success or failure, using those terms loosely, being placed much more squarely on the shoulders of a medical device company who is involved in this wholly integrated delivery services system and away from the payor.  So to Jenn's discussion, when negotiating with payors on whether you're accepting a more specific episode of care or a more integrated delivery system, the payors generally hold the card a bit more right now with respect to the data aggregation and the information that they have and the data that they have and that is something that is key and critical, as Jenn mentioned, to moving forward and to building those databases and understanding best how to build those databases.

Moving to slide thirty-three.  As we said, these regulatory challenges increase as we move to a more integrated model, as we move to more risk-sharing and as we move to having more pressure on performing from a value-based standpoint, while reducing costs.  Yet the regulatory environment has not caught up.  And this again goes back to really carefully having to have a very good compliance program in place, so that you can watch out for any conflict-of-interest issues;   you can understand separation of personnel; you can understand what data can be shared.  But also to have, again going back to the compliance piece, a robust compliance program, but not only just in paper but in discussion and in marketing, which are the critical areas.  So if you look at the Achilles heel, it is often in the marketing sector because it's the nature of the model.  And so thinking about those types of challenges and learning how to pay for them and train for them and document them, we believe, will go a long way for any challenges.  Because, again, this is uncharted waters, but yet on the one hand, CMMI is pushing so hard for value-based initiatives and, as Jenn said, they're moving more and more in that direction; the payors are pushing that and that risk onto us, but yet no one is really saying 'okay, it's okay to do this', or 'here's some guardrails or guidelines' in order to ensure that you have the ability to reduce regulatory risk.  And again, we understand that that often provides more questions than answers, but we do think that as this trend develops, there will be pressure to put out more and more guidance to discuss these delicate points and how data can be shared, how services can develop and the importance of having an integrated delivery model because that's what we're pushing toward.

So in moving to [slide] thirty-five, just very briefly so that we do have time for any questions, is just to highlight the added difficulty with the constant evolution of payment and delivery system models and knowing how to set those.  Most of us are very comfortable with the fair market value assessment, the facts and circumstances test, yet we're moving beyond that in many ways.  And so, we already covered the compliance component and the key is really thinking outside the box and I think the device industry as a whole has done that.

Jennifer:  Okay.  Thanks Deb.  Well we have had a few questions come in and one of them, which is the elephant in the room for many people, is: 'What is the future of CJR and some of these other mandatory initiatives under government programs and do you see that affecting the private pay initiatives and movements?'  And I'll actually jump in and I'll let Tim and Deb jump in as well, but I would say first, I think as many of you know, we have seen a delay in the final rule for CJR and some of the other mandatory EPMs.  They were initially scheduled to go into effect July 1, I believe, of this year, and now have been moved to October 1, but recent rule actually solicited commentation on a move to January 2018.  So, we know that there has been a delay in some of these mandatory episode models and CJR.  The other thing we know is that Secretary Price has been a fairly outspoken critic of a lot of these mandatory payment models.  So, I think the speculation and what we're hearing in some of the industry, is that the mandatory payment models, like CJR and some of the EPMs, may be made voluntary.  They may be repealed.  I know there's been some speculation that the focus on the ACA replacement has shifted away from how to deal with these mandatory payment models.  And the push-back date of the final rule is sort of seen as a way to buy time in figuring out how to deal with that.

I would say, and Deb may disagree, I would say BPCI and the private-pay programs are a little different.  I think they are voluntary—they have voluntary participants—and I think because of that, there hasn't been the same pushback and Secretary Price hasn't shown the same vehemence against them as he had the mandatory models, which I think in his eyes really forced physicians to take on a role they don't want.  You know, contrast that with BPCI, you have people who are assuming risk under BPCI voluntarily who are prepared to do so, and while it may, frankly, skew some of the outcomes in terms of how you view BPCI as a judge for the system in the move to value-based care, I think there is less of a push to move away from the voluntary payment programs.

Debbie:  I think that's right because voluntary is what it is.  It's voluntary.  I think the real challenge is going to be how to allocate those dollars, because I think what we will see, whether it's the shift from the mandatory to the voluntary programs like a CJR, if Price decides to move in that direction, which he's given indication that he may very well do so.  But even on the voluntary side, with winners and losers, if you end up with only winners in the system, then some of them become the losers by definition.  So, I think it will be a challenge to figure out how those pool of dollars are, in fact, allocated, especially if some folks decide to drop out. Because, as you know, the CJR model was inherently designed—and admittedly designed—for some folks to fail, for better or for worse.

Jennifer:  And we've had one more question which I don't think we'll be able to fully address here, but: 'What are the biggest risks that we foresee or are experiencing or have clients experienced in the move to value-based care?'  Well to kick it off, I think it's interesting—I think the risks that we're seeing now and the difficulties that we're seeing now are probably not the difficulties that we're going to see in 3–4 years.  I think now we're seeing a lot of the difficulties around people making the operational transition, trying to get a read on the new administration, trying to figure out how to turn traditionally device-focused personnel into service-focused personnel; how to build out these new partnerships; and all how to do so within a regulatory regime that isn't exactly welcoming of it.

Tim:  Jenn, I was just going to add that I agree with the point that the risks will differ based upon the maturity of programs in the value-based space.  I think over time, as players in the market adjust and pick some of the low-hanging fruit, over time risk management, meaning financial risk management and assumption of financial risk under value-based care, will be a significant business issue in an area of risk, both with respect to compliance with laws, regulating the assumption of financial risk associated with the delivery of care, and just business risk in connection with the alignment of providers and providers systems.  That, along with data points that we've talked about, the continued need for use and potential disclosure of data around the provision of care under value-based—those two issues seem to me to be two long-term issues that will need to be addressed as these initiatives mature in the marketplace.

Debbie:  Thanks Tim.  So with that I think we're concluding.  We're running right up against our time.... So this does conclude our program.  Thank you for joining us and thank you to my panelists and my colleagues, Jenn and Tim, and everybody have a great day.  Thank you.

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